The difference lies in how the corporation elects to be taxed. Corporations are taxed as separate legal entities. One disadvantage to a “C” corporation is that its earnings can be taxed twice – once on the profits earned at the corporate level, and again when those profits are distributed to shareholders. “S” corporations (along with partnerships and limited liability companies) provide pass-through tax treatment. In general, there is no entity-level tax so the earnings are only taxed once to shareholders. Pass-through entities are often good choices for businesses that are expected to generate losses in the early going because the active owners ordinarily can apply those losses against income from other sources.